Maintenance is part of development, too | Chris Grech

Malta needs to urgently upgrade its infrastructure at all levels if it is to compete in a globalised property market. Chris Grech, CEO of real estate agency Dhalia, argues that poor planning and enforcement threatens the current property boom... and warns against complacency in the rental sector

There never seems to be shortage of things to talk about in the property/development sector. Malta is currently experiencing a construction boom, and questions are now being asked as to whether our national infrastructure is up to the challenge. But new buildings are not the only things going up at the moment. The rental market, for instance, has undergone a sudden and dramatic upward spike: with rent prices soaring by over 80% in some areas.

Let’s start with that for now: recently, Finance Minister Edward Scicluna dismissed concerns that the rental explosion constitutes a ‘crisis’. He maintains that the market will regulate itself. In your own experience... is there a crisis? And if so, can it be resolved just by market forces alone?

It depends what you mean by ‘crisis’. In a sense, there is already a crisis in mainland Europe where the rental market is concerned; there always has been. In places like London and Paris, people pay more than half their salaries in rent. The main cause is a lot of outsiders moving into those cities to live and work. The same thing happens everywhere, including Malta. So the question is: are we willing to stop that? Or should we allow the economy to keep growing: with new companies coming in, and more opportunities being created? The financial sector, the igaming sector... these are the sectors that are creating an explosion in the [Maltese] rental market...

But there is a difference between Malta and a city like London. If people can’t afford London prices, they can move out of the city and commute. In Malta – which is the size of a small European city – you don’t have that option.

To a certain extent, you do. If you look at the market within the Sliema-St Julian’s-Ta’ Giorni-Swieqi area... these are definitely the most popular areas. To rent a two-bedroomed apartment in these places, you will have to pay around 800-900 euros a month. Yes, that’s unaffordable... some people earn little more than that as a full salary. Once you get to the outskirts, however... places like Fgura, Zabbar; villages like Ghaxaq or Gudja... there is a possibility to find one- or two-bedroomed apartments in the 600-700 range...

That’s hardly ‘affordable’, to the people in the salary range you just mentioned...

True. The only affordable area, in that sense, is Gozo. You can still rent a Gozo property for maybe 300/400 euros. But there’s a reason for that: in Gozo, the demand is simply not there. It goes to show the power of demand and supply. However, I don’t think we should be too concerned about the external market: I don’t think our social conscience should prick us too much if outsiders coming here can’t afford to rent.

They can always leave. I’m talking only about non-residents here... outsiders who come here to work; not Maltese citizens who have nowhere else to go. In these cases, yes, the market will adjust itself. The better-paid workers will find rental accommodation; the poorly paid will end up leaving. Or else, they can go for shared accommodation. In the UK, for instance, they are now building huge apartment blocks, and just renting out single rooms – say, a 10-sqm room with a bed and wardrobe – for £100 a week... in central London.

Maybe we need to go in that direction as well. Maybe we need to reassess our strategy when it comes to supply. But personally, I don’t think we should be over-concerned about the foreign market. There will always be solutions. It is the local market we should be concerned about. There, our social conscience should prick us: there is an issue, and I think we need to address it, and discuss possible solutions. I think the government has a huge responsibility: because it is the government that is creating this economic boom. Of course, we thank the government for its initiatives in bringing so much money in from overseas... but then there is a snowball effect that has negative effects on the Maltese market as well...

Yet the government has so far been reluctant to admit this. One of the reasons appears to be that the domestic rental market is still too small to be considered a major problem. Isn’t this a little short-sighted, though? I was under the impression that the local market is growing at a fast pace...

It is definitely growing... and it will keep on growing, for as long as our economy keeps growing. People aren’t coming here to buy... let’s face it: if you move to London to work for a year, you’re not going to buy a property there. You will rent. It’s the same everywhere. Meanwhile, more Maltese are renting too, for a number of reasons.

One, because property is very expensive. Two, because young Maltese graduates are becoming more cosmopolitan: they want to keep their options open. Shall I stay here? Or go and work in Italy, France, the UK? The EU has given us these options: we are beginning to see ourselves as more international. So I think the culture of 20, 30, 40 years ago – whereby the norm was to live and work in Malta, maybe take over the family business, or find a job as soon as you graduate, etc. – I think that’s all gone. Now, I think we’re more adventurous. And to be adventurous, you need freedom. Property is a huge commitment. That is perhaps why people are taking longer even to settle down and have kids. There is more cohabitation nowadays; people are living together before they get married – regardless of what anyone out there thinks – more than ever before. To do that, you’re not going to buy... you’re going to rent.

Redevelopment: I believe very strongly in redevelopment. And much more than expanding development zones... which is a non-starter. I agree that there should never be any new development outside the existing development zones...

Meanwhile salaries have remained largely the same, while the cost of renting has skyrocketed. Some have called on the government to ‘intervene’... though the finance minister has so far ruled out any direct intervention. What should actually happen at this point, in your view?

I totally disagree that the government should not intervene. I think it is the government’s responsibility, because it is part of the vision of government to create economic growth; they know that what they are doing is creating these repercussions....

So would you agree with the government stepping in to regulate increases in rent, for instance?

No, that’s not what I meant by ‘intervention’. I don’t believe governments should interfere with how the market actually works. But there are other things governments can do. One thing that Malta urgently needs is to build a lot more social housing... but good quality social housing.

Money – a lot of money – has to be put into more social housing, especially for the most vulnerable families that simply can’t afford a roof over their heads. We’re not talking about vast numbers here... but we can’t ignore them either. Subsidising rents in social cases might be another option, too. At the end of the day, however, I believe that the government has a responsibility to ensure that salaries are increased. These problems arise not just because rental prices have gone up... but because basic salaries have not increased accordingly. Naturally, these are things that need to be discussed; I am aware that it’s a delicate issue. But we definitely need to start coming up with solutions...

Meanwhile, the influx of foreigners looking to rent has influenced not just prices, but also the kind of development that is now going up. We are seeing large residential projects – complete with in-house shopping centres, etc – replacing the more traditional apartment blocks. You yourself recently expressed concern that the market is expanding too far and too quickly. Are you still of that view today?

I don’t think we’re tackling the challenge head on. For example: a lot more studies have to be carried out on the impact of new developments on their neighbourhoods. Environmental impact studies; noise pollution; operational issues such as garbage collection, or parking bays for delivery vans... things like that. These problems already exist. There are already a lot of food and beverage outlets, restaurants, cafes, etc, concentrated in small spaces.

Wherever you go in the Sliema/St Julian’s area, you will see trucks and vans double-parked in the middle of the road, causing traffic jams. There is no alternative... we didn’t plan for it enough. So I think the government needs to create a proper planning group to come up with operational solutions. Do we need to build more tunnels? Or reclaim land from the sea, to create more space? The problem is striking a balance between these needs and other concerns. Environmentalists, for instance, will oppose land reclamation because it destroys part of the seabed... and there are other similar issues. So these are the challenges the authorities are faced with. But action needs to be taken.

What sort of action? If you were to prioritise the problems and come up with possible solutions, what would you start with?

We need to conduct a deep study into the movement of people: the footfall, the modus operandi, the day-to-day realities on the ground. If, for example, we issue permits for a development which will increase the neighbourhood population by 300... and there’s going to be 20 more shops… what happens if there’s only a small side-street to cater for deliveries? Or if we designate a zone to be pedestrianised... how are cars going to be re-routed? Would it be possible to excavate tunnels for that purpose? This should really be automatic: I shouldn’t have to even say it. It is how it’s done in mainland Europe, as far as I know. Development and proper planning should go hand in hand. It’s a pity, because we have a great product here. We still have a beautiful country, when all is said and done. We just need to take better care of that product...

Isn’t that the crux of the matter, though? One of the main environmental concerns with the construction industry is that it is effectively ruining that product: not just because of urban sprawl spilling into the countryside, but because development itself lessens the quality of life in residential areas. Is there too much construction going on at the moment?

Rental market: I totally disagree that the government should not intervene. I think it is the government's responsibility, because it is part of the vision of the government to create economic growth; they know that what they are doing is creating these repercussions

I understand the concern; but then again, what can you do? Remember that the demand for land-use has changed over the years. Nobody wants to live in big, old townhouses any more: they prefer to live in apartments. So they sell the house, it gets demolished, and apartments are built instead. That’s the way it’s going: everything is changing.

We used to have residential areas mixed with things like mechanics’ garages at street-level... now, this is no longer acceptable. A huge hotel with a lot of empty spaces that didn’t have any value... it will be pulled down and rebuilt as apartments. So we’re going into a redevelopment phase. And it’s not just affecting residential development: even the retail sector, for instance. People today prefer to shop in malls, rather than on the high street.

High street shops in areas like Hamrun are closing down for lack of demand. They will probably be converted from ground-floor outlets, into small one-bedroomed apartments than can be rented out. There is a lot of scope for redevelopment in Malta. I believe very strongly in redevelopment, rather than new development. And much more than expanding development zones... which is a non-starter. I agree that there should never be any new development outside the existing development zones...

Fair enough, but redevelopment within the zones still has an impact on the quality of life. Why should people pay high rent to live in an area which is permanently affected by all the inconvenience of construction: noise, dust, traffic, etc?

I see your point; but the fact is that, when the market is good, you will always have a lot of construction. In the last few years, we have experienced a boom. This is boom-time... you have to accept this. Eventually, however, the market stabilises. It’s always been this way...

Has it though? The market didn’t stabilise in the USA in 2008/9, and it triggered a worldwide crisis... there is no guarantee that the property bubble will not burst. In fact, you warned about this yourself in a recent interview...

Don’t get me wrong. I’m not saying the bubble cannot burst. It can, if we do things wrongly. If we create a bad reputation for ourselves as a country; if we engineer our own crisis through bad management.... if we screw up, yes, the bubble can burst. The most we can hope to do is minimise the impact. And the only way to do that is for us to go out there, to be proactive, and seek new markets.

That’s the best we can do. Having said that: there is still no guarantee that the bubble won’t burst. I don’t think anyone can play Nostradamus here. But we can be clever, and ensure that we don’t overstretch ourselves too quickly. I don’t think it’s a good idea to have seven or eight major projects happening at the same time in Paceville, for example. It could create an oversupply...

But if there are too many projects going on in Paceville... what about the entire country? And if the idea is to protect our product, in order to market it and attract more upmarket tenants from overseas... aren’t we doing the opposite by turning Malta into a giant building site?

Things can be managed better, that’s for sure. I can confirm that we do occasionally lose clients... because of the dirt in the streets, for instance. In fact, one thing which really upsets me about Malta is how dirty it is. Let’s not pretend it isn’t. It’s dirty. People from Northern Europe are amazed by how dirty Malta is.

There’s no enforcement on keeping our streets clean; on keeping our pavements perfectly tiled. And there’s not enough maintenance, either. Going into a project also means providing maintenance every day. It’s not about ‘building something nice’. You have to keep that ‘something’ maintained, for it to remain ‘nice’. Then you go into the countryside, and find it full of dumped litter. Or our tourist areas... sometimes, right outside our offices here in St Julian’s, it stinks because of all the garbage from restaurants.

So yes, we do have a problem. These are the areas we need to address. We need to clean up our country. And we can do something about it: we are a clean people. Our homes are all clean. So we have the potential: it’s just about the responsible departments getting their act together, and actually doing something about it once and for all.